This underperforming sector means good things for the rest of the market

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

And with it moves the posse of issues that are set to benefit the most from perceptions for a loosening of regulation, a cut in taxes, and a bump in fiscal spending. This means financial in general, and banks and brokers in particular; transportation; and industrial.

On the other side of the coin, the S&P 500's four defensive sectors — consumer staples XLP, +0.29%utilities XLU, +0.73%health care XLV, -0.88%
and telecommunications IYZ, -0.37%
— are underperforming the S&P 500
SPX, -0.35%
a significant plus pointing to a healthy amount of speculative sentiment. It is the speculative sentiment, or the willingness to take on risk, that is so crucial to the durability of an advance.

The breadth of the move impresses when looking at the new-high data. For example, the number of 52-week Nasdaq highs reached 446 on Nov. 14, the most in a number of years. This is a sign of overwhelming participation in the Nasdaq advance. This leadership is coming more from small-capitalization issues IWM, -0.38%
and less from large names found in the Nasdaq 100.

Overall, shares have moved into the most positive period of the year, historically. Given the mostly straight-up move to a new high over the past fortnight, the Nasdaq Composite can be expected to pull back in order to digest its gains.

However, overbought can sometimes stay overbought, especially after a decline. For this reason, speculators should maintain an open-minded, flexible approach with no preconceived ideas of where the market will go short term.

Meanwhile, the Wall Street Journal reports that, according to Lipper, investors placed more money into stock ETFs during the week following the election than any other week in history. The view here is that this should be interpreted bullishly, and not as an indication of a speculative blow-off.

Among the names, Baozun BZUN, -2.97%
uses its e-commerce supply-chain technology and services to connect brands and consumers. Most analysts on Wall Street who follow the Chinese concern look for earnings growth to be 108% in 2016 and 170% in 2017.

After going public 18 months ago at 10.00 and subsequently moving up close to 50% in the first two weeks post-IPO, BZUN dropped to as low as 4.00 during an extended consolidation. It is currently six weeks into a new cup-shaped pattern. At a depth of 32%, it is considered deep for a base of just six weeks' duration, as the chart below shows.

For this reason, and because the stock is teen-priced, it would be preferable to see price spend more time backing and filling before trying to take out the Nov. 15 high of 16.92. A cheater entrance could be taken using 16.92 as a pivot, but the depth of the base and the liquidity of the issue augur for a more patient approach. (Regarding liquidity, the average daily dollar volume is about $8.3 million, while the market capitalization is about $791 million.)

A preferred approach would be to wait for BZUN to round out its base before considering an entrance. In any case, a reduced-size starter position is appropriate here.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. This initial position could be added to if the stock proves itself. In most cases, a position should not be entered when price is extended, i.e. more than 5% past the top of its base.

Everbridge EVBG, +2.22%
is an enterprise-software developer that recently came public. While it is expected by Wall Street to lose money this year and next, it has booked enviable revenue growth of 30%, 31% and 31% over the most recent three quarters, respectively.

After going public two months ago at 12.00, price shot up 56% in its first two days post-IPO. Over the past nine weeks, it has been forming a cup pattern with a 31% depth. As mentioned here a number of times, a new issue that climbs 50% in its first two months is worth paying attention to.

The stock is under solid accumulation (focused buying). Price should be allowed to pull back, ideally to the 15.50-16.00 area, before an entrance is considered. Should price continue to advance toward 18.00 without pulling back in the immediate-term, another pullback entrance should be watched for.

A breakout above the high of 18.73 should not be taken without some sort of pullback first, whether it occurs sooner or closer to the top of the pattern.

Volume-backed momentum in the averages and the quality of sector leadership, i.e. risk-on segments, suggest further upward revaluation. Banks and brokers have proven to be worthy leading indicators, historically. Their pre-election outperformance and post-election explosion speaks.

While most large-growth stocks are in laggard mode, opportunities in smaller growers provide aggressive speculators with something to chew on. Defensive-sector underperformance is a substantial plus.

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position.Neither MIAC nor any of its affiliates will be liable, and we accept no liability whatsoever, for any losses any recipient of this report may suffer as a result of his or her or its use of this report or any of its contents.

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